Deep Dive into Detroit Neighborhoods: Island View
The City of Detroit is a well-known hotspot for real estate investors, and with good reason!
Not only is the housing market affordable—you can snag properties for less than $100k here pretty easily—but the increasing demand for single-family homes in the area makes Michigan’s “Motor City” one of America’s top destinations for investing in rental properties that yield solid cash flow.
However, the city is exceptionally diverse. There are a total of 84 neighborhoods, each with its own sub-areas, tenant demographics, and property conditions. This means newcomers will benefit from expert knowledge and guidance to navigate the risks and reap the best returns from the Detroit rental market.
That’s why I’ve created this “Deep Dive into Detroit Neighborhoods'' series to help both local and out-of-state investors get an in-depth view of the housing market in the City of Detroit. My team uses our experience as local residents and property managers in the greater Metro Detroit to write these guides, giving you reliable overviews that can help narrow in on a particular neighborhood to buy in.
Our goal is to empower you with the information necessary for a successful investment in the rental market of the City of Detroit. We’ll show you the real estate potential and risk of each neighborhood, evaluating key factors such as:
- 1. The expected returns from rental properties
- 2. The types of tenants to expect
- 3. The kind of management required
For this installment, we’re taking a look at Islandview, an up-and-coming rental market area, named for its proximity to Detroit's island park, Belle Isle.
City of Detroit
Before we get into the details of our featured neighborhood, let’s take a look at how the City of Detroit is divided. There are 11 regions within the city itself:Source: Wikipedia.com
Each of these regions has a distinct personality. For example, New Center is known to be a historical district, Midtown is a mix of business, university, and cultural areas, and Downtown Detroit is the central business and residential space.
Within these regions are also sub-sections, such as the East Side, which is divided into Upper, Center, and Lower East. Islandview neighborhood is part of the Lower region, bordered by Jefferson to the south, Mack to the north, Baldwin to the east, and Mt. Elliott to the west.
Islandview sits inside the Jefferson Corridor area, close to Midtown and Downtown along the Detroit River.
The Islandview neighborhood was named for its proximity to Belle Island, a popular city park in the Detroit River. It has a population of 5,477 people, according to Areavibes.com. The population density is 3,594 people per square mile, which is 25.57% lower than the density of the City of Detroit on average.
Living in Islandview is a mix of both urban and suburban, where most residents rent their homes. The neighborhood is also popular among retirees, and there are a lot of parks for locals to enjoy.
The eastern section of Islandview features plenty of 20th-century single-family homes, multi-family homes, apartment buildings, and brick row houses. Close to historic East Village, West Village, and Indian Village, all of which are renowned for their historic charm and eclectic, artistic communities, Islandview is fast becoming the next “most desirable place to live” in Detroit, as more people get priced out of the neighboring areas.
What's exciting for investors to know is that large portions of the neighborhood are experiencing a rebirth of new housing developments. This can be seen especially in the southeastern side of Islandview, close to West Village, where the community-based Messiah Housing Corporation and the Islandview Development Corporation are leading development efforts, which include a high-class luxury condominium building.
With all of this going on, should investors grab the opportunity to acquire rental properties in Islandview?
While there are many factors to consider when evaluating an investment opportunity, the financial viability of property is most important, so let’s start there.
We've done the math for you below, identifying the average property condition, rent amount, and home value of properties in Islandview. These are the key indicators to investment success, on top of the quality of tenants that you'll eventually acquire.
The average property age in the area is 82 years old and older, which is on par with the rest of Detroit, like other areas in the city average 70-100 years old.Source: City-data.com
According to Zillow, 45% of dwellings in Islandview are large apartment buildings, with single detached homes and townhouses coming in second and third.
Most homes have one to two bedrooms. The majority (66%) are occupied by renters, while the rest (34%) are owned, meaning there’s a large demand for rental properties in the area.
Like many other neighborhoods in the City of Detroit, Islandview has some properties that are in need of repairs and modernization, as well as some that are well-maintained or even completely refurbished. If you’re looking into buying a fixer-upper to rent out, be ready to deal with some underlying issues.
These are the common problems you should look out for:
- 1. Corroded plumbing underground and in the walls
- 2. Outdated electrical systems with ungrounded outlets (e.g. 2 prongs instead of 3)
- 3. Underpowered electrical systems (like 100 amp electric service instead of modern 200 amp)
- 4. Old gravity-style furnaces instead of modern forced air furnaces, or even older boiler 5. heating systems that are expensive to replace
- 6. Damaged roofing (e.g. missing shingles, big gaps, and water damage)
- 7. Lots of old, deteriorated wooden windows
This is not an exhaustive list. However, it should put you on the right track to thoroughly evaluate the home you're considering. Be sure to work with a real estate agent and professional inspectors to fully understand the condition of the property before signing on the dotted line.
We’re going to quickly look at what historical data states about Islandview rents, and then look at current data. The historical data shows average rents in Islandview of $631 per month. This is 16.3% lower than the average rent in the City of Detroit and 21% lower than the rest of Michigan state:Source: Areavibes.com
According to Niche.com, residents in Islandview have an average household income of $2,164 per month. This number means the rent-to-income ratio is at 29%, which means that most renters need to set aside a third of their income for rent.
Islandview therefore pretty much fits the industry rule of thumb of "income = 3x rent", where a tenant’s monthly income ideally needs to be triple the rent amount. This way, you can be relatively well-assured that your tenants will be able to consistently pay their monthly rent on time and in full.
However, rents are on the rise! Currently, as per Zillow, a 3-bedroom house in central Islandview is going for $2,100 per month, as shown below:Source: Zillow.com
Average Home Value, Price, and Appreciation
While Niche states that the median home value in Islandview is $99,678, which is 102.6% higher than the median value of $49,200 in the City of Detroit, the current reality is much different.
City data breaks home values into different housing types, and the chart below shows single-family homes in Islandview have significantly greater values than the city average.Source: Zillow.com
The preferred ratio of monthly rent against the house value (including the purchase price and all necessary repairs) should be at least 1%. This is known in the industry as the 1% Rule and is a quick barometer to gauge the cash flow potential of an investment opportunity.
Across the City of Detroit, the ratio is favorable for investors who are looking to invest for cash flow. In fact, the city is known to have one of the best rent-to-price ratios out of 50 of the biggest cities in the country.
If you use data from Niche, which reports an average rent of $631 and an average home value of $99k, the rent-to-price ratio is just 0.75%.
The more current data from Zillow, which we’ve shared above, shows rents of $2100 and prices around $160,000. These numbers lead to a rent-to-price ratio of 1.3%.
In addition, it’s a promising area for equity gains.
Looking at the data provided by Realtor.com, the median list price of homes in Islandview has been increasing by 107.5% year-over-year.Source: Realtor.com
Potential Tenant Pool
The quality of your tenants contributes greatly to the success of your rental investment. Good tenants will cost you less in repairs, missed rents, and disputes, which ultimately increases your profitability. Bad tenants will do the opposite.
Since the neighborhoods in the City of Detroit vary wildly from each other, it’s important that you know the type of tenants you’ll get in Islandview to help you budget for potential issues and accurately assess the viability of a particular rental property.
Let's take a look at the tenant pool in Islandview, and evaluate them based on key factors. The following data is taken from multiple research points, including our own experience as a property management company in Metro Detroit.
Tenant Demographic: Class C, Trending to A & B
The increasing values & rents in the Islandview neighborhood are obvious indicators that the neighborhood is gentrifying. We’re sharing the current demographic data below, but note that the data is lagging.
Average income: According to Niche, the median household income of the residents in Islandview is $2,164 per month. This is 15.93% lower than the average of the City of Detroit of $2,574.
Unemployment rate: Islandview has an unemployment rate of 8.2%, which is below the City of Detroit's overall average of 11.9%:
Neighborhood Current Livability: B
Aside from the tenant pool, you also need to evaluate the area where the property is situated. The goal is to invest in areas that are in high demand by high-quality tenants. Doing so will increase your chances of attracting and securing tenants who will keep up with rent, take care of your properties, and abide by your agreements.
Below are details on what life is like in Islandview:
Diversity: The racial diversity in Islandview is broken down as follows:Source: Areavibes.com
Crime and safety: While Niche.com shows overall crime rates significantly higher than the national averages, Trulia.com’s survey shows that 45% of the locals describe the streets as well-lit and 31% would walk alone at night.
Transportation and walkability: More than half (59.3%) of the workforce in Islandview drive to their place of employment, with 24% taking public transit. That means properties that are located near major highways or public transit stations will be attractive to prospective tenants.
Overall score: B
Based on our research and experience as a property management company in the local area, we've scored Islandview a “B” for rental investing.
The evaluation is driven by the following factors:
- 1. While homes tend to be more expensive, townhouses and other housing types with attached units are more affordable in Islandview.
- 2. Prices are on the rise and planned development projects are accelerating this process.
- 3. With high rent-to-price ratios and an increasing median list price, the area is ideal for investing for appreciation as well as cash flow.
- 4. Most tenants will pay their rent consistently, as the rent-to-income ratio is within the industry standard.
Overall, we see Islandview as an up-and-coming neighborhood that should definitely be considered by all rental property investors looking into the City of Detroit. Expectations should be realistic about investing in an area going through gentrification - some streets will gentrify faster than others and it may take 3-5 years to fully realize significant gains.
We've put more emphasis on the financial viability of investing in Islandview, as money is still the root of all investments. It should be said that all property scoring systems are inevitably subjective—we suggest that you only use this guide to kickstart your own evaluation of the neighborhood.
Anything else you want to know before investing in the City of Detroit? Feel free to reach out to me; I’m more than willing to help you out.
This is a continuing series on the neighborhoods in the City of Detroit. Comment below if there's a specific area you'd like us to prioritize. We won’t stop until we’ve covered them all!
Image Courtesy of Liza